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Will the expected increase in Australian unemployment rate impact RBA rate outlook?

  • The Australian Unemployment Rate is expected to continue rising in April.
  • Employment Change could post a modest improvement after March’s slump.
  • AUD/USD could run past 0.6700 on an upbeat employment report. 

Australia will publish the April employment report on Thursday at 1:30 GMT. The Australian Bureau of Statistics (ABS) is expected to announce the country added 23.7K new job positions in the month, after losing 6.6K in March. The Unemployment Rate is foreseen to increase to 3.9% after ticking higher to 3.8% previously. 

It is worth remembering that Australia reports the monthly Employment Change split into full-time and part-time positions. Generally speaking, full-time jobs imply working 38 hours per week or more and usually include additional benefits, but they mostly represent consistent income. On the other hand, part-time employment generally means higher hourly rates but lacks consistency and benefits. That’s why the economy prefers full-time jobs.

In March, the economy added 27.9K full-time jobs and lost 34.5 part-time ones, for a net loss of 6.6K employees. At the same time, the Unemployment Rate rose from 3.7% in February to 3.8%, while the Participation Rate declined 0.1 percentage points to 66.6%. The discouraging report was widely anticipated following an outstanding February report, and the Australian Dollar (AUD) actually appreciated against the US Dollar (USD) right after the release.  

Australian unemployment rate expected to keep rising in April

Market analysts anticipate the Australian Unemployment Rate increased to 3.9% in April after rising to 3.8% in March. As previously noted, the country is expected to have created roughly 24K new job positions. 

Tight labor market conditions have been an issue for central banks around the world for most of 2023, as it poses an upward risk to inflation. The problem has extended throughout the first quarter of 2024, with some tepid signs of loosening conditions falling short of being enough to spook concerns. 

Australia is no exception to this, as the sector has remained relatively strong. The Reserve Bank of Australia (RBA) met in early May, and as widely anticipated, policymakers kept the Official Cash Rate (OCR) unchanged at 4.35%. Governor Michele Bullock delivered a speech following the decision and noted that policymakers “must” be vigilant on inflation risks and said they would adjust policy as needed. However, Bullock added she does not think they will necessarily have to tighten again, but refused to commit to rate cuts. 

The tepid March employment report followed a strong one in February, keeping the labor market off the RBA’s radar. On the contrary, inflation remains the main concern. The Australian Bureau of Statistics (ABS) publishes the Consumer Price Index (CPI) quarterly. According to the latest release, the CPI rose 1.0% in the first quarter of the year, higher than the previous 0.6%. On a positive note, the report showed that over the twelve months to the March quarter, the CPI rose 3.6%, easing from the 4.1% posted in the twelve months to December. 

At this point, market participants anticipate the first interest-rate reduction could happen in March 2025. 

When will the Australian employment report be released, and how could it affect AUD/USD?

The ABS will publish the  April employment report early on Thursday. As previously stated, Australia is expected to have created 23.7K new jobs in the month, while the Unemployment Rate is foreseen at 3.9%. The Participation Rate was reported at 66.6% previously.

With that in mind, a solid employment report will likely cool further hopes for a soon-to-come rate cut and provide near-term support to the AUD. An extremely poor outcome could spell trouble for the Aussie, although the broad US Dollar’s weakness will likely prevail after the dust settles. Furthermore, it would take more than one dismal report to consider the labor market is loosening, which means it would hardly impact RBA’s future monetary policy decisions. 

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair surged to fresh four-month highs following the release of the United States (US) Consumer Price Index (CPI) and trades in the 0.6660 region ahead of the event. The pair struggles to extend its upward momentum as selling interest has rejected advances around the current price zone since early March. Persistent buying interest could push AUD/USD towards 0.6700, while beyond the latter, resistance could be found at 0.6730 and 0.6770. A dismal report, on the contrary, may temporarily weigh on the Aussie. Near-term support comes at 0.6600, followed by the 0.6550-0.6560 price zone. Bear in mind, bulls will likely take their chances on intraday slides.” 

Bednarik adds: “AUD/USD gains are directly linked to persistent US Dollar’s weakness, amid diminished hopes the Federal Reserve (Fed) will trim interest rates in the upcoming months. With that in mind, the pair is set to resume its pre-release trend once speculative interest digests the employment figures.”

Economic Indicator

Employment Change s.a.

The Employment Change released by the Australian Bureau of Statistics is a measure of the change in the number of employed people in Australia. The statistic is adjusted to remove the influence of seasonal trends. Generally speaking, a rise in Employment Change has positive implications for consumer spending, stimulates economic growth, and is bullish for the Australian Dollar (AUD). A low reading, on the other hand, is seen as bearish.

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Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.